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Identity Theft Safeguards to Expand for 2017

As the IRS, taxpayers, and tax practitioners get ready for the 2017 tax filing season, the IRS touted the successes that it and its Security Summit partners have had in reducing tax return identity theft during the 2016 filing season and described how it will expand its efforts in the fight for 2017 (IR-2016-144). Security Summit partners include state tax authorities, tax preparation businesses (including tax preparation software companies), and banks.

For the first nine months of 2016, the number of tax return identity theft victims was reduced by half from the same period in 2015, from 512,278 down to 237,750, the IRS reported. In addition, many more fraudulent returns were identified and intercepted before processing, the number of fraudulent refunds paid by the IRS and identified by banks fell greatly, and information shared with states and tax preparers and new data elements reduced fraudulent returns and refunds even more.

For the 2017 filing season, the IRS and its partners announced additional "trusted customer" features that would help reduce this crime even more. Those plans include:

Thirty-seven new data elements will be transmitted by the tax industry with every tax return (although the public will not be told what they are), providing additional information to strengthen the authentication that a tax return is being filed by the real taxpayer.

For the first time, tax preparers will share with the IRS and states 32 data elements from business tax returns to extend identity theft protections to business filers as well as individuals.

More than 20 states are working with the financial services industry to create a program to flag suspicious refunds before they are deposited into taxpayers' accounts. Private-sector partners are improving efforts to be sure that refunds go into the real taxpayers' accounts—not into fraudsters' accounts.

The Form W-2 Verification Code initiative, which was started by the IRS last year, will expand to 50 million forms in 2017 from 2 million in 2016. This initiative involves entering a 16-digit code to verify Form W-2 information when the return is prepared by the taxpayer or tax preparer. This code will eventually appear on all Forms W-2.

Software password requirements will continue to be improved by software providers for individual taxpayers and tax preparers, providing additional safety before the return is filed.

The IRS also announced that it is forming an Identity Theft Tax Refund Fraud Information Sharing and Analysis Center, which will be an improved early warning system that identifies new identity theft schemes and quickly shares that information among Summit partners so that all participants can enact safeguards.

The IRS also reiterated the role taxpayers and tax practitioners can play in stopping tax return identity theft by being aware of data security issues—especially avoiding phishing schemes.

The winners of The Tax Adviser’s 2016 Best Article Award are Edward Schnee, CPA, Ph.D., and W. Eugene Seago, J.D., Ph.D., for their article, “Taxation of Worthless and Abandoned Partnership Interests.”

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